Gold price recovers slightly ahead of Fed minutes

November 18, 2015

London (Nov 18)  Gold nudged higher on the London spot market Wednesday, but precious metals continue to trade near multi-year lows as expectations for a rise in US interest rates next month whittle away at investor confidence in the complex.

The price of gold began trade on Wednesday by sinking to its lowest level since February 2010, before it recovered slightly to trade up 0.2 per cent at $US1,071.90 a troy ounce. Spot platinum dropped to its lowest level since the financial crisis, dragged down by gold, as it fell 0.3 per cent to $US849.20 an ounce.

Traders remain focused on the timing of a US rate rise, a factor that has knocked 6.29 per cent of gold's value this month to date. The Federal Reserve has indicated it will hike rates at its next meeting in December. The Fed fund futures foresees the probability of rates rising this year at 65 per cent.

The minutes from the Federal Open Market Committee meeting in mid-October are due late Wednesday. The market will likely be watching for greater clarity on the Fed's actions.

"The direction of gold continues to be dictated by US interest rate expectations, and dollar appreciation has attributed to the factors repelling investors from this metal," Lukman Otunuga, a research analyst at FXTM, said in a note.

A rate increase would likely strengthen the dollar and make the precious metals more expensive to buy for those holding weaker currencies. The metals, which don't pay interest and cost money to hold, would also become less competitive with yield-bearing assets, like Treasurys, when rates are higher.

Safe-haven demand for gold sparked by Friday's terror attacks in Paris was short-lived, as predicted by market participants.

On Monday, the metal broke a twelve-session losing streak to rise more than 1 per cent as the events in Paris increased demand for the metal.

"Gold is not a safe haven and is not a good investment and this has been borne out with the [$US30] drop since the initial knee-jerk reaction on Sunday night after the dreadful events in Paris," David Govett, head of precious metals at Marex Spectron, said in a client note. "I don't see prices recovering soon and we will remain in thrall to the Fed's will they/won't they scenario for the month ahead."

Gold has historically been considered an asset in which investors keep money in times of heightened uncertainty as it maintains a stable value.

Some analysts say gold's safe-haven status has faded, as investors focus on the first US rate rise in almost a decade and because inflation, a typical driver of gold, has been largely absent from major economies.

Among the other precious metals, spot silver was up 0.3 per cent at $US14.214 an ounce and spot palladium was up 0.1 per cent at $US541.30 an ounce.

Source: BusinessSpectator

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